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- Introduction
- What is Managed Care?
- A Definition of Managed Care
- What are the Local Issues Facing Managed Care?
- What is the Experience from Abroad?
- The Results of Managed Care
- Applying the Lessons to New Zealand
- Summary
Introduction
Contracting strategies between Regional Health Authorities (RHAs) and providers are moving forwards at a rapid pace, none more so than at the primary care level.
The Ministry of Health (the Ministry) has signalled to the RHAs in the most recent policy guidelines that it is interested to see further exploration of general practitioner (GP) contracts which include budget responsibility.
If it can be made to work, there are attractions for both purchasers and providers. On the one hand there is a new level of responsibility and accountability, but with this can come a level of autonomy and clinical freedom to achieve the results required.
Such arrangements do introduce a new element of risk which is directly linked to the level of responsibility agreed to in the contracting process. There is already quite a diversity in the level of risk which provider groups are willing and able to take on. This is quite appropriate, but requires some flexibility in the approach to contracting.
It is understandable that in this new environment both purchasers and providers would look for approaches to health care delivery which enable them to best handle the issues faced. This has led to considerable interest in managed care which is very much ’flavour of the month’, having been the subject of a recent conference in Auckland and again the topic for discussion at a conference being arranged jointly by the Ministry and the RHAs in May.
Nonetheless many remain unclear as to the meaning of managed care and its implications, a situation which is not helped by the lack of agreement even amongst those driving the changes.
What is Managed Care?
Managed care is an American approach to the delivery of health care that has been adopted by a number of other countries.
The essential features are that a group or organisation undertakes a contractual responsibility with a health care purchaser to provide a defined range of services to a defined population for a defined budget.
Through this process, the contracting group becomes responsible for delivering the specified services within the budget agreed, ie the process makes a significant step towards the alignment of clinical and financial responsibilities that is seen to be important in achieving maximum health gains from the available resources.
There is no assumption that the contracting organisation is at the primary level, though this is clearly one option. Indeed in the USA the managed care organisations may not themselves be providers, but specialise in resource management and case coordination, as is frequently the case with Health Maintenance Organisations (HMOs).
A Definition of Managed Care
"Managed Care involves a group or organisation undertaking a contractual responsibility with a health care purchaser to provide a defined range of services to a defined population for a defined budget."
Although the principles remain the same wherever managed care is applied, it is clear that adaptation to the local health needs is required, a process which is currently occurring in New Zealand.
There are many potential risks in adopting a foreign model without first considering what it was designed to achieve, whether it had been successful, and how applicable it might be to local needs.
What are the Local Issues Facing Managed Care?
There are a number of key issues which need to be addressed if managed care is to deliver its promise.
Clarifying the Expectations
Different groups have varying expectations over the results which managed care will deliver. These can be divided into three main categories and include:
- Health outcomes:
- The system will deliver improved health gains.
- Such gains will be achieved in a cost-effective manner.
- The provision of services:
- The services provided will focus on the health needs of the population.
- Through choice and enrolment, individuals will be able to exert a greater influence over the appropriate delivery of services.
- Use of resources:
- Achieve a reduction in overall health care expenditure.
- Achieve control in growth in expenditure.
- Achieve more efficient use of the available resources.
- Achieve savings against budget.
The reality, however, is that not all these can be realised. Expectations could usefully be re-evaluated by looking at the experience gained from managed care models abroad.
Equity of Funding and Access
It is understandable that concerns remain over the equitable allocation of funding achieved through the processes currently available for budget setting. Work is ongoing to identify health risk adjusted formulae, ie allocation of budgets based on the varying needs of the population.
A similarly unresolved issue is whether budget-holding groups lead to a multi-tier system, particularly when they are able to negotiate differing access criteria to secondary care services.
It is possibly more important to recognise that the current system is already multi-tier, therefore an issue which already needs to be addressed, and to question whether budget-holding actually disadvantages patients in non-budget-holding practices (an unacceptable situation) or leads to improved quality services which can benefit all (an acceptable situation).
Investment and Returns
It is increasingly accepted that funding is required to support the infrastructure changes necessary to make managed care work, in particular for the information systems and a more detailed management approach.
While the RHAs have made significant investments through Transitional Assistance Grants, the funds available may be insufficient to meet all requirements and could become a limiting factor in making progress. Alternative sources of private funding are available, but will only be committed if a return on the investment is possible. The level to which this is acceptable requires further discussion.
Use of Savings
Both purchasers and providers recognise the potential for making savings within the allocated budgets, and to some extent these are being used as a provider incentive.
Depending on the contracting model, these may be shared with the purchaser or retained by the provider for distribution to individual practitioners, or more frequently for the purchase of additional services.
This latter ability to provide additional services is a major attraction and one which, through a competitive element, is likely to drive advances in service provision, yet there remains some question as to how such additional services should be prioritised. Local and regional views may not be the same.
A National Policy
At present the principles of managed care are being used by RHAs to help achieve their purchasing responsibilities (efficiency, effectiveness, equity, appropriateness, safety, risk management).
While a national policy is almost certainly not required, the Ministry has signalled an interest in this process, and should declare as soon as possible any particular position it intends to take on the matter as this could have significant implications for the nature of contracts currently being contemplated.
What is the Experience from Abroad?
Some useful insight to the promises on which managed care might deliver can be gained by reviewing the experiences from abroad. Two very different models seem appropriate. Firstly the USA, where managed care originated, and secondly the UK which is just beginning to develop a managed care approach in its ’total fund-holding’ practices.
Health Care Delivery Objectives
It is worth reflecting on the health care delivery objectives declared in each of these countries, and compare them with New Zealand.
For the USA cost containment is the main issue. The country continues to face rapid growth in health expenditure which is already a significant percentage of GDP (14.1% in 1994). A series of government policies over many years have led to employers picking up a significant level of health funding requirements provided as an employee benefit through insurance (77% of total health expenditure).
Until comparatively recently there was little incentive to control the growth in expenditure. Insured individuals could consume more care without any direct impact on their own financial position and where in some situations the costs greatly exceeds any possible benefit.
In this environment managed care is attractive as it offers the possibility of gaining control over expenditure, through defining the services and funds which are available, and the manner in which they will be provided.
In the UK the government wished to promote better value for money and improve consumer choice. While fund-holding was introduced to provide some alignment of clinical and financial responsibilities, the initial approach used indicative budgets and risk sharing to manage the funding.
This approach was largely required because of the negative response to fund-holding initially received from the medical profession.
The objectives for New Zealand appear more similar to the UK than the USA, being to achieve the best health gain for every dollar, to enable consumer choice, to focus on services, and encourage partnerships.
The Results of Managed Care
There is no doubt that in the USA managed care has achieved significant savings in some areas, figures of 20% to 30% are quoted, but require further comment.
Managed care groups are able to use their negotiating power to achieve supplier discounts. Nonetheless these are one-off savings which do not necessarily represent increased overall efficiency, nor affect growth in expenditure unless the mix and volume of services being consumed is also changed. These are largely controlled by practitioners.
There is evidence that the range of benefits available to enrollees in managed care schemes has been progressively reduced in the recent past. This in itself may be no bad thing if in fact the range of accessible services was previously excessive. Unfortunately there still appears to be little reliable evidence on the health outcomes and health impacts achieved.
Some groups have also been criticised for selective recruitment of individuals less likely to require care (cream skimming) or to encourage others to access alternative care to which they are entitled, eg the government funded Medicare scheme, (cost shifting).
At the same time there has been a documented increase in the level of overheads required to run a managed care system. One study quoted overheads within Medicare to be 2% compared with 18% to 30% for managed care.
Hospitalisation rates have reduced in the last six years, but may be a function of technology as these have been experienced in both managed care and fee-for-service systems.
So while managed care in the USA has received a level of criticism on both financial and clinical fronts, it is seen to have achieved some short term cost savings and better defined the services which should be available. In the medium term there are questions about the quality of care provided and the impact on health outcomes, along with uncertainty over the sustainability of the savings, and the probability that these are balanced out by increased overhead requirements.
In the UK, the uptake of GP fund-holding has gathered pace after a slow start. In excess of 40% of the population is now covered by fund-holding practices, which are responsible for 8% of the National Health Service (NHS) budget for hospitals and community services.
Recent developments have seen the creation of multi-funds, where fund-holding practices achieve economies of scale through amalgamation of administration and purchasing, and total-fund-holding where certain practices are able to take responsibility for any of the full range of NHS services.
A recent study by the UK Audit Office found that direct involvement of GPs in health care purchasing has led to improvements in the services provided for their patients and made fund-holders more aware of the cost implications of their spending decisions.
There is growing evidence of efficiency gains in certain areas. In particular savings in drug budgets, and a shift in the provision of some secondary care services to the primary level. On the other hand studies have indicated no marked change in hospital referral rates, and concern that the level of transaction costs has increased.
Other issues frequently discussed include the relative access to services, the quality of care provided, equity of funding, price setting, issues of cream skimming and the organisational impacts of the changes being made, particularly as they relate to communication, information and patient satisfaction.
It is acknowledged that there is still little data available to evaluate the impact of these changes, in particular the effect on health status of the population. While this situation is now being addressed the required information will only come through over the next few years.
Overall the lessons from the UK are not dissimilar to experience in the USA. Some short term savings have been achieved with a focus on the range of service available and the manner in which these are provided. Transaction costs have undoubtedly risen, and in addition there is uncertainty over the level of funding injected by the government to facilitate the changes.
While initially the health reforms established a competitive provider model to drive efficiencies, more recent developments have seen a more collaborative approach evolve, where providers seek longer term relationships which will be mutually beneficial.
Applying the Lessons to New Zealand
What Can Managed Care Achieve?
From the evidence available it does appear reasonable to expect that managed care will achieve an alignment of clinical and financial responsibilities, which leads to a focus on the use of resources and the results achieved. As a result there is a drive to reduce the fragmentation of services through integration of care, where possible.
As this clearly impacts on the way individuals practice, which itself is the main determinant of the quality of care delivered and the use of resources, this is in itself is a powerful reason to pursue a managed care path.
What May Managed Care Achieve?
While there is some evidence of short term financial savings there are concerns that these may not be sustainable, and from the evidence available would be balanced out by an increase in transaction costs and overheads.
The probability therefore is that although there may be no overall reduction in health care expenditure the component costs are different and allow the development of a more flexible, accountable system better able to respond to changing health needs.
What Evidence is Still Required?
Some critical questions remain to be answered, particularly hard evidence for the health outcomes achieved as evidenced by changes in health status, along with the impact on the quality of service delivery, access to care, patient satisfaction, availability of information as a basis for choice and staff motivation.
While in principle a managed care system should be more efficient, notably through the integration of care, there is yet little supporting evidence.
Summary
Given the following objectives for health care delivery in New Zealand, managed care has a very real role to play, with a high expectation that it will contribute significantly to their realisation:
- Achieve the best health gain for every dollar, enable consumer choice, focus on services, and encourage partnerships.
- Providers should ensure that a specific population receives a defined set of services in a co-ordinated manner.
While managed care should lead to efficiencies in the delivery of services the evidence for this is not yet available. Importantly it is unlikely to lead to any overall reduction in health care expenditure.
There are potential risks to the quality of care provided, access to services and the overall health outcomes achieved. Evidence of the impact on these areas is still required and may be some years in coming.
It is clear that uncertainties still exist, but that a managed care approach offers the opportunity to address some key areas in health care delivery. A critical issue therefore is how to introduce managed care so that the benefits outweigh the risks. It is hoped that forthcoming meetings will address these issues in more detail.
